Nersa grills Eskom about implications of a 16.6% tariff hike it has requested

January 18, 2016, 8:25pm

By Carol Paton, Business Day LivePhoto: Thinkstock on Business Day Live

ESKOM executives faced tough questions from the National Energy Regulator of SA (Nersa) on Monday, which questioned about whether the company had properly considered the effect on the economy of its proposed 16.6% tariff increase for 2016, should this be granted.

Nersa also questioned whether Eskom’s extensive use of diesel-powered open cycle gas turbines to keep the lights on was entirely prudent and why their use deviated so wildly from what Eskom had budgeted for in its original price application.

Nersa is holding hearings into Eskom’s application to claw back unanticipated costs from the 2013-14 financial year using a mechanism called the revenue clearing account. The mechanism allows Eskom to recover costs from consumers retrospectively by adding them onto the next year’s tariffs. This is provided Nersa deems the additional costs have passed its efficiency tests and were prudently incurred.

Eskom has applied to claw back R22.8bn, which would amount to an 8.6% additional increase on top of the 8% already approved for 2016.

Replying to questions on the use of the diesel-powered turbines, Eskom corporate specialist in the system operator Theresa Smith said that Eskom’s overriding concern was to keep the system stable, and perfect planning was difficult as decisions had to be made in the moment.

While it might not seem economical to use the turbines, the cost of load shedding was far greater to the economy, she said.

The use of the turbines cost Eskom an extra R8bn during 2013-14 year.

Nersa member for electricity, Thembani Bukula, said the regulator wanted to understand why Eskom had overspent to such an extent in only one year when in its original five-year application it had budgeted to spend R10bn over the entire period.

Mr Bukula said that most of the submissions that Nersa had received from stakeholders appealed to it not to grant the full 16.8%.

The hearings take place over the next two weeks.

In the first session held in Cape Town on Monday, Eskom’s chief financial officer, Anoj Singh, argued that Eskom had considered the effect of the tariff increase on consumers and the economy.

However, it also had to balance the needs of other stakeholders and endeavour to place the company on a more sustainable footing, he said.

"We did look long and hard at the implications (of our application) on the economy. But we were also of the view that as Eskom, we have various stakeholders to take into account, not only the interests of consumers," Mr Singh told the Nersa panel.

"We have a fiduciary duty to our shareholder, which is the government; and we must demonstrate to investors that we can use the revenue clearing account to improve the sustainability of the organisation."

In an interview on the sidelines of the hearings, Mr Singh said that should Eskom’s application not be favourably viewed by Nersa, its credibility in the eyes of the investors would be undermined.

"If we don’t get the increase, we will have to borrow more but the bigger concern is the effect that this would have in terms of regulatory certainty and the credibility associated with the longer term view that investors would take on Eskom," he said.